Highlights
First it was oil prices and now it's the strong dollar that is holding down import prices. Import prices did rise 0.4 percent in February but excluding petroleum imports, prices of which rebounded a sharp 8.1 percent, import prices fell a steep 0.4 percent following a 0.6 percent decline in January. Year-on-year, import prices excluding petroleum are in the negative column at minus 1.8 percent as are total prices which are down a very steep and very deflationary minus 9.4 percent.

Export prices are also down, at minus 0.1 percent for a year-on-year decline of minus 5.9 percent. Agricultural prices are the major component on the export side, down 2.0 percent and excluding which prices edged 0.2 percent higher. Year-on-year, non-agricultural export prices are at minus 5.5 percent.

A look at finished goods shows a sweep on minus signs on both the import and export sides including a minus 1.0 percent reading for year-on-year imported capital goods and a minus 1.4 percent year-on-year reading for exported consumer goods.

The outlook for import prices, despite what may be stability in oil prices, is not favorable given the enormous ongoing strength in the dollar, strength mainly related to the divergence between European monetary policy, which is increasingly expansionary, and the outlook for US policy which is expected to be increasingly less expansionary. Next inflationary readings will be Friday with the producer price report.

Market Consensus Before Announcement
Import prices fell 2.8 percent in January alone for year-on-year contraction of 8.0 percent. And it's much more than just the impact of the strong dollar as export prices are also in contraction, at minus 2.0 percent for the month and minus 5.4 percent on the year. The import price contraction was centered in petroleum where import prices fell a monthly 17.7 percent for year-on-year contraction of 40.1 percent. Excluding petroleum, import prices were still down sharply, at minus 0.7 percent for the month, which is the sharpest drop for this core reading since March 2009, and minus 1.2 percent for the year. Turning to details on export prices, agricultural prices fell 1.2 percent for a year-on-year minus 6.3 percent. Excluding agriculture, export prices are down 2.1 percent, which is the largest drop since November 2008, and down 5.3 percent on the year.

Definition
Import price indexes are compiled for the prices of goods that are bought in the United States but produced abroad and export price indexes are developed for the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products.

Description
Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar. The bond market is especially sensitive to the risk of importing inflation because it erodes the value of the principal (the original investment) which is paid back when the bond matures. It also decreases the value of the steady stream of interest rate payments on this type of security. Inflation leads to higher interest rates and that's bad news for stocks, as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolios.

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